Sunday, October 9, 2011

Why living downtown has become more attractive

When Jeff Walker purchased his home a decade ago in downtown Ottawa, environmental sustainability and transportation costs were a big reason.

“I had to sacrifice 20 per cent more space and yet pay 20 per cent more for the home, but I figured it was worth it,” said Walker, who is a vice-president and chief strategy officer at the Canadian Automobile Association. “I think it’s a calculus that many home owners do, especially since transportation in terms of time and money becomes a significant monthly overhead.”

The Toronto Board of Trade says the most pressing issue for the Toronto area is gridlock, costing the region $6 billion annually. A poll conducted for the board released last week says 61 per cent believe traffic congestion is at “crisis proportions.”

According to a Statistics Canada survey released in August, the Greater Toronto Area was once again the worst place to commute in Canada at 33 minutes.

Commute times and gas prices are two very big reasons that some buyers like Walker are avoiding the suburbs, even if they can get a bigger bang for their buck.

According to a recent U.S. based survey of agents by realty firm Coldwell Banker, the high cost of gasoline and long travel times is a major factor in influencing some home purchasing decisions.

Three quarters of agents said the a spike in gas prices influenced their clients’ decisions on where to live. Another 93 per cent said if gas prices continued to rise, more home buyers would choose to live somewhere closer to work.

“There is an implicit price that has to be paid for the length of a commute, whether it is in gas or in time,” said Phil Soper, CEO and president of Royal Lepage Real Estate Services. “The invisible hand of commerce is in the decision making process of urban verses suburban. People get a discount if they live in the suburbs and a premium when they live downtown.”

The 2004 documentary The End Of Suburbia argued that suburban sprawl is unsustainable. And that was when domestic crude was in the $37 range - where it has more than doubled today.

“America took all its post war wealth and invested it into something that has no future,” say the filmmakers.

That same year a study by University of Toronto civil engineering professor Eric Miller concluded that commuting costs and the extra expense of running a larger suburban home often eat into any mortgage savings.

What surprised Miller was that a similarly valued home in the suburbs also ended up costing more to run. That’s because you get more space for the dollar in the 905 compared with the 416.

But more space means higher utilities and maintenance.

The study didn’t include the value of time spent in the car traveling or the environmental impact of more pollution.

“I think the finding was that there is no such thing as cheap land, the further out you go, the more it will cost you,” said Miller. “And that comparison would be even more dramatic today since the cost of gas, cars and parking has gone up since then.”

The study didn’t factor in the fact that downtown areas, which are becoming increasingly more attractive to buyers, tend to increase more in value than suburban areas.

(A 2008 study by Royal LePage found that a standard detached bungalow in Toronto would have appreciated by 104 per cent over a ten year period compared to a similar bungalow in the 905 at 78 per cent.)

“As gas prices rise I think there is an implicit discount on suburban prices, because there is a greater cost to the consumer,” said Soper. “You see that in so many areas of Toronto. There are neighbourhoods that are a ten minute commute from downtown, but you are paying a lot more for a tiny plot of land because of that.”

Gina Gokaldas, 24, says she moved downtown after a year and a half living in a new Markham condominium because of the long commute.

“It just took too long to get to work,” said Gokaldas, who moved to Markham from Montreal in 2009. “I just spent way too much out of my day traveling.”

Gokaldas says she chose Markham initially because of the value.

“Everything in my price range was like a shoebox downtown, so when I saw the property in Markham I was sold,” says Gokaldas.

Gokaldas paid about $300,000 at the time for her 900 square foot apartment. Similar apartments she said were almost half the size in the downtown area.

But the commute finally got to Gokaldas. Earlier this year she sold her home. She is now renting an apartment a block away from the Eaton Centre and it takes her 20 minutes on the subway to get to work.

“It’s night and day, although I miss the space I had,” says Gokaldas, who now lives in about 500 square feet until she decides to buy again.

Still, despite the dire predictions, sales in the suburbs have been doing well, even with high gas prices. While many potential home buyers are looking for places closer to the central core because of high transportation costs, affordability in the 416 has become a serious issue.

“Gas savings are certainly an incentive, but we have a lot of clients looking at the 905, not because they don’t like the 416, it’s because they can’t afford to find a house in their price point down there,” said Dave Elfassy, an agent with Right At Home Realty. “You might save some money in transportation costs, but you’re really giving up on space. They’re figuring it will tack on another 45 minutes to go to work, but they can live in a monster home in Richmond Hill, as opposed to a semi or a condo downtown.”

So, bigger space, or a stress free commute. While the dilemma for home buyers isn’t new, the reality is that the divide has never been more dramatic in an era of rising energy costs and home prices.

“Maybe the answer is to find that job in the burbs or work from home,” laughs Elfassy.